Asian markets began the week with gains led by the semiconductor sector, fueled by high demand for AI chips. However, global investors are wary of rising US bond yields and high energy costs, which could impact capital flows into emerging markets like India and keep the currency under pressure.
Asian stock markets started the trading week with gains, supported by the technology sector as demand for artificial intelligence hardware continues to grow. Indices across Asia, including South Korea’s tech-heavy benchmarks, saw positive movement on Monday, showing that interest in AI-related semiconductors remains a key growth factor for global investors despite significant macro pressures.
Impact of Rising US Bond Yields
While tech optimism has provided a boost, investors are concerned about the sharp rise in US bond yields. Two-year US Treasury notes have climbed 36 basis points in the last two weeks to reach their highest levels since mid-2024. This trend matters for Indian investors because higher US yields often make US bonds more attractive than assets in emerging markets, potentially triggering selling by foreign institutional investors. Furthermore, with markets now pricing in a 56% chance of a Federal Reserve rate hike in October, borrowing costs could remain high, affecting liquidity across global markets.
Energy Prices and Geopolitical Risks
Energy markets remain a major source of concern. Geopolitical tensions in the Middle East, specifically following attacks impacting Saudi Arabian infrastructure, have kept Brent crude oil prices above $100 per barrel. This is particularly relevant for the Indian economy, which imports a large portion of its energy needs. Sustained high oil prices can put pressure on the rupee, increase inflationary risks, and potentially impact the profit margins of oil marketing companies. Analysts note that current inventory buffers could be exhausted in weeks, keeping prices volatile.
Broader Macro Context
Global markets are also adjusting to political uncertainty in Europe, where French debt risks and German election results have created volatility. This uncertainty has kept the Euro range-bound and contributed to a stronger US dollar. A stronger dollar typically pressures other currencies, including the Indian Rupee, and makes dollar-denominated imports more expensive.
Looking ahead, investors should monitor how crude oil prices settle following the recent supply disruptions and whether foreign institutional investors continue to adjust their portfolios in response to rising US Treasury yields. Additionally, management commentary from Indian companies regarding input costs and demand in international markets will be important to track as global conditions evolve.